Question 1

A current liability is a debt that can reasonably be expected to be paid

Accepted Answer

A) within one year, or the operating cycle, whichever is longer. 
B) between 6 months and 18 months. 
C) out of currently recognized revenues. 
D) out of cash currently on hand. 
A) within one year, or the operating cycle, whichever is longer. 
B) between 6 months and 18 months. 
C) out of currently recognized revenues. 
D) out of cash currently on hand.

Question 2

Which of the following statements regarding the effective interest method of accounting for bonds is false?

Accepted Answer

A) GAAP requires the use of the effective interest method. 
B) The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective interest method is used. 
C) Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. 
D) The effective interest method applies a constant percentage to the bond carrying value to compute interest expense. 
A) GAAP requires the use of the effective interest method. 
B) The amount of periodic interest expense decreases over the life of a discounted bond issue when the effective interest method is used. 
C) Over the life of the bond, the carrying value increases for discounted bonds when using the effective interest method. 
D) The effective interest method applies a constant percentage to the bond carrying value to compute interest expense.

Question 3

A note payable must always be paid before an account payable.

Accepted Answer

A) True 
 B)False

Question 4

Collins Company borrowed $1,250,000 from BankTwo on January 1, 2019, in order to expand its mining capabilities.The five-year note required annual payments of $325,545 and carried an annual interest rate of 9.5%.What is the amount of expense Collins must recognize on its 2020 income statement?

Accepted Answer

A) $118,750. 
B) $99,104. 
C) $87,821. 
D) $77,591. 
A) $118,750. 
B) $99,104. 
C) $87,821. 
D) $77,591.

Question 5

Keller Company issued a five-year interest-bearing note payable for $300,000 on January 1, 2019.Each January the company is required to pay $60,000 on the note.How will this note be reported on the December 31, 2020, balance sheet?

Accepted Answer

A) Long-term debt, $300,000 
B) Long-term debt, $240,000 
C) Long-term debt, $180,000; Long-term Debt due within one year, $60,000 
D) Long-term debt of $240,000; Long-term Debt due within one year, $60,000 
A) Long-term debt, $300,000 
B) Long-term debt, $240,000 
C) Long-term debt, $180,000; Long-term Debt due within one year, $60,000 
D) Long-term debt of $240,000; Long-term Debt due within one year, $60,000

Question 6

Fornelli Corporation borrowed $800,000 from Central Bank on May 31, 2019.The three-year, 7% note required annual payments of $304,840 beginning May 31, 2020.The total amount of interest to be paid over the life of the loan is

Accepted Answer

A) $56,000. 
B) $114,520. 
C) $223,470. 
D) $168,000. 
A) $56,000. 
B) $114,520. 
C) $223,470. 
D) $168,000.

Question 7

In a monthly mortgage payment, the same amount is recorded as interest expense as in the previous month's payment.

Accepted Answer

A) True 
 B)False

Question 8

Warner Company issued $5,000,000 of 6%, 10-year bonds on one of its interest dates for $4,318,500 to yield an effective annual rate of 8%.The effective-interest method of amortization is to be used.The journal entry to be recorded at the end of the second year for the payment of interest and the amortization of discount will include a

Accepted Answer

A) debit to Bond Interest Expense for $300,000. 
B) credit to Cash for $349,118. 
C) credit to Discount on Bonds Payable for $45,480. 
D) credit to Discount on Bonds Payable for $49,118. 
A) debit to Bond Interest Expense for $300,000. 
B) credit to Cash for $349,118. 
C) credit to Discount on Bonds Payable for $45,480. 
D) credit to Discount on Bonds Payable for $49,118.

Question 9

Bonds with a face value of $600,000 and a quoted price of 98½ have a selling price of

Accepted Answer

A) $589,500. 
B) $588,300. 
C) $588,030. 
D) $591,000. 
A) $589,500. 
B) $588,300. 
C) $588,030. 
D) $591,000.

Question 10

Oliver Company issued $2,000,000 of 6%, 5-year bonds at 98.Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?

Accepted Answer

A) $120,000 
B) $60,000 
C) $124,000 
D) $128,000 
A) $120,000 
B) $60,000 
C) $124,000 
D) $128,000

Question 11

With an interest-bearing note, the amount of cash received upon issuance of the note generally exceeds the note's face value.

Accepted Answer

A) True 
 B)False

Question 12

Failure to record a liability will probably

Accepted Answer

A) result in an overstated net income. 
B) result in overstated total liabilities and owner's equity. 
C) have no effect on net income. 
D) result in overstated total assets. 
A) result in an overstated net income. 
B) result in overstated total liabilities and owner's equity. 
C) have no effect on net income. 
D) result in overstated total assets.

Question 13

The amount of sales tax collected by a retail store when making sales is

Accepted Answer

A) a miscellaneous revenue for the store. 
B) a current liability. 
C) not recorded because it is a tax paid by the customer. 
D) recorded as an operating expense. 
A) a miscellaneous revenue for the store. 
B) a current liability. 
C) not recorded because it is a tax paid by the customer. 
D) recorded as an operating expense.

Question 14

Wolford Company borrowed $2,000,000 from U.S.Bank on January 1, 2019, in order to expand its mining capabilities.The five-year note required annual payments of $520,872 and carried an annual interest rate of 9.5%.What is the amount of expense Wolford must recognize on its 2020 income statement?

Accepted Answer

A) $190,000 
B) $158,567 
C) $140,518 
D) $124,146 
A) $190,000 
B) $158,567 
C) $140,518 
D) $124,146

Question 15

Interest expense on an interest-bearing note is

Accepted Answer

A) always equal to zero. 
B) accrued over the life of the note. 
C) only recorded at the time the note is issued. 
D) only recorded at maturity when the note is paid. 
A) always equal to zero. 
B) accrued over the life of the note. 
C) only recorded at the time the note is issued. 
D) only recorded at maturity when the note is paid.

Question 16

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

Accepted Answer

A) $4,500,000 
B) $135,000 
C) $450,000 
D) $315,000 
A) $4,500,000 
B) $135,000 
C) $450,000 
D) $315,000

Question 17

West County Bank agrees to lend Drake Builders Company $400,000 on January 1.Drake Builders Company signs a $400,000, 6%, 6-month note.The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is

Accepted Answer

The answer of West County Bank agrees to lend Drake...

Question 18

The contractual interest rate is always equal to the market rate of interest on the date that bonds are issued.

Accepted Answer

A) True 
 B)False

Question 19

Winrow Company received proceeds of $754,000 on 10-year, 8% bonds issued on January 1, 2019.The bonds had a face value of $800,000, pay interest annually on December 31, and have a call price of 101.Winrow uses the straight-line method of amortization.Winrow Company decided to redeem the bonds on January 1, 2021.What amount of gain or loss would Winrow report on its 2021 income statement?

Accepted Answer

A) $36,800 gain 
B) $44,800 gain 
C) $44,800 loss 
D) $36,800 loss 
A) $36,800 gain 
B) $44,800 gain 
C) $44,800 loss 
D) $36,800 loss

Question 20

If bonds are issued at a discount, it means that the

Accepted Answer

A) financial strength of the issuer is suspect. 
B) market interest rate is higher than the contractual interest rate. 
C) market interest rate is lower than the contractual interest rate. 
D) bondholder will receive effectively less interest than the contractual rate of interest. 
A) financial strength of the issuer is suspect. 
B) market interest rate is higher than the contractual interest rate. 
C) market interest rate is lower than the contractual interest rate. 
D) bondholder will receive effectively less interest than the contractual rate of interest.

A current liability is a debt that can reasonably be expected to be paid

Which of the following statements regarding the effective interest method of accounting for bonds is false?

A note payable must always be paid before an account payable.

Collins Company borrowed $1,250,000 from BankTwo on January 1, 2019, in order to expand its mining capabilities.The five-year note required annual payments of $325,545 and carried an annual interest rate of 9.5%.What is the amount of expense Collins must recognize on its 2020 income statement?

Keller Company issued a five-year interest-bearing note payable for $300,000 on January 1, 2019.Each January the company is required to pay $60,000 on the note.How will this note be reported on the December 31, 2020, balance sheet?

Fornelli Corporation borrowed $800,000 from Central Bank on May 31, 2019.The three-year, 7% note required annual payments of $304,840 beginning May 31, 2020.The total amount of interest to be paid over the life of the loan is

In a monthly mortgage payment, the same amount is recorded as interest expense as in the previous month's payment.

Bonds with a face value of $600,000 and a quoted price of 98½ have a selling price of

Oliver Company issued $2,000,000 of 6%, 5-year bonds at 98.Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?

With an interest-bearing note, the amount of cash received upon issuance of the note generally exceeds the note's face value.

Failure to record a liability will probably

The amount of sales tax collected by a retail store when making sales is

Wolford Company borrowed $2,000,000 from U.S.Bank on January 1, 2019, in order to expand its mining capabilities.The five-year note required annual payments of $520,872 and carried an annual interest rate of 9.5%.What is the amount of expense Wolford must recognize on its 2020 income statement?

Interest expense on an interest-bearing note is

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

West County Bank agrees to lend Drake Builders Company $400,000 on January 1.Drake Builders Company signs a $400,000, 6%, 6-month note.The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is

The contractual interest rate is always equal to the market rate of interest on the date that bonds are issued.

If bonds are issued at a discount, it means that the

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Understanding Investments in Debt and Equity Securities

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Exam 10: Reporting and Analyzing Liabilities

A current liability is a debt that can reasonably be expected to be paid

Which of the following statements regarding the effective interest method of accounting for bonds is false?

A note payable must always be paid before an account payable.

Collins Company borrowed $1,250,000 from BankTwo on January 1, 2019, in order to expand its mining capabilities.The five-year note required annual payments of $325,545 and carried an annual interest rate of 9.5%.What is the amount of expense Collins must recognize on its 2020 income statement?

Keller Company issued a five-year interest-bearing note payable for $300,000 on January 1, 2019.Each January the company is required to pay $60,000 on the note.How will this note be reported on the December 31, 2020, balance sheet?

Fornelli Corporation borrowed $800,000 from Central Bank on May 31, 2019.The three-year, 7% note required annual payments of $304,840 beginning May 31, 2020.The total amount of interest to be paid over the life of the loan is

In a monthly mortgage payment, the same amount is recorded as interest expense as in the previous month's payment.

Bonds with a face value of $600,000 and a quoted price of 98½ have a selling price of

Oliver Company issued $2,000,000 of 6%, 5-year bonds at 98.Assuming straight-line amortization and annual interest payments, how much bond interest expense is recorded on the next interest date?

With an interest-bearing note, the amount of cash received upon issuance of the note generally exceeds the note's face value.

Failure to record a liability will probably

The amount of sales tax collected by a retail store when making sales is

Wolford Company borrowed $2,000,000 from U.S.Bank on January 1, 2019, in order to expand its mining capabilities.The five-year note required annual payments of $520,872 and carried an annual interest rate of 9.5%.What is the amount of expense Wolford must recognize on its 2020 income statement?

Interest expense on an interest-bearing note is

If a corporation issued $9,000,000 in bonds which pay 5% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

West County Bank agrees to lend Drake Builders Company $400,000 on January 1.Drake Builders Company signs a $400,000, 6%, 6-month note.The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is

The contractual interest rate is always equal to the market rate of interest on the date that bonds are issued.

If bonds are issued at a discount, it means that the

Introduction to Financial Statements

A Further Look at Financial Statements

The Accounting Information System

Accrual Accounting Concepts

Merchandising Operations and the Multiple-Step Income Statement

Reporting and Analyzing Inventory

Fraud, Internal Control, and Cash

Reporting and Analyzing Receivables

Reporting and Analyzing Long-Lived Assets

Reporting and Analyzing Stockholders Equity

Statement of Cash Flows

Financial Analysis: The Big Picture

Understanding Investments in Debt and Equity Securities

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